Turkish economic growth dips as lira crisis darkens outlook

Finance Minister Berat Albayrak said, growth was driven by domestic demand despite a moderate slowdown in consumption and investments in the second quarter but the slowdown will become more visible from the third quarter. (Getty Images)
Updated 10 September 2018
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Turkish economic growth dips as lira crisis darkens outlook

  • Tayyip Erdogan has overseen strong growth during his 15 years in power but the economy is now facing challenges after a sharp decline in the lira
  • The government has been working on stimulus measures to stave off the expected slowdown in the coming quarters

ISTANBUL: Turkish economic growth slowed to 5.2 percent year-on-year in the second quarter, data showed on Monday, in what officials described as an economic rebalancing before an expected second-half slowdown as Turkey grapples with a currency crisis.
President Tayyip Erdogan has overseen strong growth during his 15 years in power but the economy is now facing challenges after a sharp decline in the lira, triggered partly by concerns about his influence over monetary policy.
In a Reuters poll, the economy had been expected to grow 5.3 percent in the first quarter. The lira firmed to 6.4550 against the dollar after the data from 6.4850 beforehand.
Second quarter gross domestic product (GDP) expanded a seasonally and calendar adjusted 0.9 percent from the previous quarter, data from the Turkish Statistical Institute showed. Last year the economy grew 7.4 percent.
Growth was driven by domestic demand despite a moderate slowdown in consumption and investments in the second quarter but the slowdown will become more visible from the third quarter, said Finance Minister Berat Albayrak.
Rabobank emerging markets forex strategist Piotr Matys said that, given concerns over the economy overheating, the slowdown from 7.3 percent in the first quarter could be seen as encouraging.
“The Turkish economy is widely expected to lose even more momentum in the coming quarters as a result of significant lira depreciation,” he said, adding that attention was focused on the central bank’s rate-setting meeting on Thursday.
Investors expect the central bank to raise interest rates, but the size of the hike will be crucial, Matys added. The bank left rates on hold at its last meeting in July, defying expectations of a hike.
Data last week showed inflation surged to 17.9 percent year-on-year in August, its highest level since late 2003, prompting the central bank to signal it would take action against “significant risks” to price stability.
In the second quarter, the agricultural sector shrank 1.5 percent year-on-year while the industry sector grew 4.3 percent, the construction sector grew 0.8 percent and services expanded 8 percent.
According to a Reuters poll, the economy is expected to grow 3.3 percent in the year as a whole.
The government has been working on stimulus measures to stave off the expected slowdown in the coming quarters. Erdogan, a self-described “enemy of interest rates,” has pushed banks to lend more to boost private spending.
His demands for lower interest rates have fueled concerns that the central bank lacks independence. The lira has tumbled 41 percent against the dollar this year in a slide exacerbated by a bitter diplomatic row with the US.
Officials have said they expect a contraction of the economy in the third quarter and full-year growth of around four percent — below a 5.5 percent government target.


Siemens CEO pushes plans to boost Iraqi power infrastructure

Updated 23 September 2018
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Siemens CEO pushes plans to boost Iraqi power infrastructure

FRANKFURT: Siemens said its boss Joe Kaeser met Iraq’s prime minister on Sunday to discuss a proposal by the German company to expand the Middle East nation’s power production.
The German engineering group said it was proposing a deal to add 11 gigawatt (GW) of capacity over four years, saying this would boost the country’s capacity by nearly 50 percent.
It did not give a value, but such a contract would be worth several billion euros based on previous comparable deals.
Iraq has a wide gap between electricity consumption and supply. Peak demand in the summer, when people turn on air conditioners due to high temperatures, is about 21 GW, far exceeding the 13 GW the grid is currently provides, experts say.
Kaeser said in a statement after meeting Prime Minister Al-Abadi that they had “discussed the comprehensive Siemens roadmap to build a better future for the Iraqi people.”
“In Egypt, we have done the same and successfully built up the power infrastructure in record time with the highest efficiency,” he said.
In 2015, Siemens signed an 8 billion euro ($9.4 billion) deal with Egypt to supply gas and wind power plants to add 16.4 gigawatts of capacity to the country’s power grid, marking the group’s single biggest order.
The proposal for Iraq, first pitched in February, would include cutting Iraq’s energy losses, introducing smart grids, expanding transmission grids, upgrading existing plants and adding new capacity.
The group would also help the government secure funding from international commercial banks and export credit agencies with German government support, creating thousands of jobs in Iraq.
Siemens would donate a $60 million grant for software for Iraqi universities, it said.